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THE  RETURN  ON  THE 
INVESTMENT   IN  THE  SUBWAY 


OF    THE 


Interborough  Rapid  Transit  Company 
of  New  York  City. 


SUBMITTED    TO    THE 


PUBLIC  SERVICE  COMMISSION 

FOR  THE  FIRST  DISTRICT  OF  THE  STATE  OF   NEW  YORK 

BY 
BION   J.   ARNOLD, 

Special  Consulting  Engineer. 


REPORT  No.  7, 

December  31,   1908. 


s>r 


PUBLIC  SERVICE  COMMISSION, 

154  NASSAU  STREET 

NEW  YORK  CITY 


[Form  2132] 


[2d  1000— F  '09  (B)] 


THE  RETURN  ON  THE 
INVESTMENT   IN   THE   SUBWAY 


OF    THE 


Interborough  Rapid  Transit  Company 
of  New  York  City. 


SUBMITTED    TO    THE 

PUBLIC  SERVICE  COMMISSION 

FOR  THE  FIRST  DISTRICT  OF  THE   STATE   OF   NEW  YORK 

BY 

BION  J.  ARNOLD, 

Special  Consulting  Engineer. 


REPORT  No.  7, 

December  31,   1908. 


PUBLIC  SERVICE  COMMISSION, 

154  NASSAU  STREET 

NEW  YORK  CITY 


MARTIN  B.BROWN 
*  PRESS* 


NtWVO'ORIv 


LETTER    OF  TRANSMITTAL. 


December  31st,  1908. 
Public  Service  Commission,  for  the  First  District,  State  of  New  York,  Tribune  Build- 
ing, City: 
Gentlemen — I  have  the  honor  to  transmit  herewith  my  report  upon  "The  Return 
on  the  Investment,"  in  the  Subway  of  the  Interborough  Rapid  Transit  Company, 
this,  being  Report  No.  7.  Many  of  the  conclusions  reached  in  this  Report  result  from 
analyses  already  made  in  my  former  reports  upon  "The  Signal  System,"  "The  Subway 
Car,"  "The  Capacity  of  the  Subway,"  and  "The  Traffic  of  the  Subway." 

This  report  discusses  the  influence  on  the  return  upon  the  investment  of  the 
density  of  traffic;  non-paying  branch  lines;  fixed  charges  upon  structure  and  equip- 
ment; depreciation;  income  and  expenses  per  car  mile;  non-paying  car  miles;  the 
necessity  for  the  development  of  the  short  haul  business ;  development  of  maximum 
capacity  by  proper  design  and  the  relative  effect  of  each  of  these  elements  upon  the 
practicability  of  maintaining  a  Subway  system  throughout  Greater  New  York  upon  a 
fixed  five  cent  fare  basis. 

,  Respectfully  submitted, 

BION  J.  ARNOLD,  Consulting  Engineer. 


680862 


THE  RETURN  ON  THE  INVESTMENT 

In  the  Subway  of  the  ,» '  '„  ]  V 

INTERBOROUGH   RAPID   TRANSIT  COMPANY     !,!'. 

of  \,,  •       •  ■    •      • 

NEW   YORK    CITY. 

The  fundamental  problem  of  rapid  transit  in  the  City  of  New  York,  at  the  present 
time,  is  how  to  provide  additional  rapid  transportation  facilities  and  maintain  the 
present  five  cent  fare.- 

In  order  to  determine  to  what  extent  additional  Subways  can  be  constructed  and 
operated  profitably  either  by  municipal  credit,  private  capital  or  a  combination  of  both, 
:t  is  imperative  to  study  the  results  of  three  years'  operation  of  the  present  Subway. 

The  object  of  this  report,  therefore,  is  to  analyze  the  various  items  of  revenue  and 
expense  and  to  show  the  relative  financial  influence  on  each  item  of  the  possible  im- 
provements that  can  be  made  on  the  design  and  operation  of  subsurface  systems  of 
transportation. 

Analysis  of  Earnings  and  Expenses. 

Table  No.  1  shows  a  comparative  statement  of  the  car  miles,  the  earnings  and  the 
operating  expenses  for  the  present  Subway  for  three  consecutive  fiscal  years,  the  last 
one  ending  June  30th,  1908. 

It  will  be  noted  from  this  table  that  during  the  last  three  years  the  revenue  from 
passenger  traffic  has  been  increasing  from  21.6  cents  to  22.77  cents  per  car  mile  and 
that  the  revenue  from  other  sources  (rent  of  power,  advertising,  privileges,  etc.)  has  also 
been  increasing  from  .47  cents  to  .53  cents  per  car  mile,  making  the  gross  income  per  car 
mile  increase,  in  these  three  years,  from  22.08  cents  to  23.3  cents  per  car  mile. 

On  the  other  hand,  the  expense  of  operating  the  road  has  fluctuated  from 
9.32  cents  to  10.45  cents  and  back  to  10.05  cents  per  car  mile,  resulting  in  the  net 
earnings  also  fluctuating  from  12.76  cents  to  12.43  cents,  and  finally,  during  the  last 
yearly  period  shown  it  reaches  13.25  cents  per  car  mile. 

The  revenue  is  derived  from  three  sources : 

1.  From  advertising. 

2.  From  rent  of  power,  sale  of  privileges,  etc. 

3.  From  passenger  traffic  amounting  to  the  five  cent  fare  multiplied  by  the  number 
of  passengers  carried. 

The  total  revenue  from  the  first  two  items  amounted,  during  the  past  year  to 
2.27%    of   the    revenue    from    all    sources   and   these   items    are    increasing   in    relative 


importance  each  year.  It  is  probable  that  the  revenue  from  other  sources  than  pas- 
senger traffic  may  be  made  to  amount  to  one  cent  per  car  mile,  and  therefore  is  a  source 
of  revenue  that  should  not  be  neglected. 

Unless  the  fare  is  raised,  the  only  method  of  increasing  the  last  item  or  the 
gross  revenue  from  passenger  traffic  is  to  carry  more  passengers.  This  possible-  increase 
in  passenger  traffic  may  be  divided  into  four  classes : 

a — Passengers  who  would  ride  counter  to  the  rush  travel,  thus  utilizing  to  better 
advantage,  than  at  present,  the  returning  cars. 

b — Passengers  whu  ,vould  ride  during  non-rush  hours,  thus  utilizing  the  equip- 
ment which  is  on  hand  but  at  present  lying  idle  during  a  large  part  of  the  time. 

c — Passengers  who  would  ride  a  comparatively  short  distance — that  is,  short  haul 
passengers  who,  at  present,  either  walk  or  use  the  surface  lines. 

d — Passengers  who  would  add  to  the  present  traffic  during  rush  hours. 

The  object  should  be  to  increase  the  average  income  per  car  mile  without  adding 
materially  to  the  present  crowding;  that  is,  the  most  desirable  passengers  are  those 
of  the  first  three  classes. 

Table  No.  1. 
Comparative  Statement  of  Car  Miles,  Earnings  and  Operating  Expenses  of  the 
Subway  of  the  Interborough  Rapid  Transit  Company,  New  York  City,  as 
Given  in  its  Reports. 


Year  Ended 


June  30th,   1906. 


Per 

Amount.  Car 

Mile. 


June  30th,   1907. 


Amount. 


Per 

Car 

Mile. 


June  30th,   1908. 


Amount. 


Per 

Car 
Mile. 


Car   Miles .31,931,073  37,184,940 

Earnings: 

From    Transportation $6,900,873.96     $.216       $8,319,468.24 

From    Other    Sources 151,138.04        .0047  187,455.37 

Totals 7,052,012.00 

Expenses: 

A     Maintenance: 

a.  Way     358,014.01        .0112 

b.  Equipment   360,628.88        .0113 

c.  Power    Plant ....         75,256.13        .0024 

B     Transportation,  Operation : 

a.  Wages,       Conductors, 

Motormen  &  Guards      538,795.47        .0169 

b.  Wages,      Platform 

men,     Agts.,     Gate- 
men,    Porters 273,718.23  .0086 

c.  Other    expenses 347,857.19  .0108 

C     Power    Supply 830,266.59  .0260 

D     General    Expenses 193,572.85  .0060 

Total    Expenses 2,978,109.35 

Ratio  of  Operating  Expenses  to 

Earnings   42.23%'  45.64% 

Net    Earnings $4,073,902.65        .1276     $4,623,553.93 


44,005,213 

.2237  $10,020,538.18 

.0050  232,799.19 

.2208   8,506,923.61   .2288  10,253,337.37 


483,975.09 
706,839.06 
115,887.66 

664,519.95 

318,639.32 
411,140.44 
921,168.32 
261,229.84 


.0130 
.0190 
.0031 

.0179 


518,552.16 
821,744.49 
153,756.87 


.0086  370,786.85 

.0110  419,245.05 

.0247  1,047,259.33 

.0070  304,900.10 


43.14% 

.1243     $5,830,024.10 


.2277 
.0053 

.2330 


.0118 
.0187 
.0035 


787,068.42       .0179 


.0084 
.0095 
.0238 
.0069 


.0932   3,883,369.68   .1045   4,423,313.27   .1005 


,1325 


It  was  shown  in  my  report  Number  6  upon  "The  Traffic  of  the  Su'i  way" 
that  the  local  or  short  haul  business  is  by  far  the  most  desirable  pass  mger 
traffic  and  that  the  success  of  the  present  Subway  as  well  as  the  poss  bility 
of  building  future  Subways  depends  largely  upon  the  possibility  of  devel- 
oping this  short  haul  business.  There  is  nothing  to  be  gained  by  increasing  the  long 
haul  load — in  fact  this  part  of  the 'business  has  already  become  too  great  a  burden 
and  unfortunately  is  growing  rapidly.  The  only  possible  way  to  offset  the 
losses  due  to  passengers  riding  10  to  15  miles  for  5  cents  is  to  furnish  a  local  service 
which  will  attract  a  greater  number  of  oassengers  who  will  ride  comparatively  short 
distances  on  a  5  cent  fare.  This  short  haul  business  will  not  be  an  advantage,  how- 
ever, unless  it  can  be  handled  in  short  haul  cars,  can  be  accommodated  by  cars 
which  otherwise  would  run  empty,  or  can  be  handled  by  means  of  moving  plat- 
forms at  a  lower  cost  per  passenger  than  by  train  operation.  It  is  a  matter 
of  every  day  observation  that  there  is  a  large  amount  of  short  haul  passenger 
business  available  in  the  downtown  district  of  Manhattan  which  is  not  at  present 
accommodated  by  the  surface  or  elevated  systems,  and  it  is  this  kind  of  traffic  which 
would  produce  relatively  the  largest  net  returns  for  a  Subway  system.  The  travel 
which  has  been  created  by  the  present  Subway  between  the  42nd  Street  district  and 
lower  Manhattan  is  a  convincing  demonstration  that  there  is  little  disadvantage  to 
the  spreading  out  of  the  business  district  even  as  far  as  Central  Park — if  the  trans- 
portation facilities  can  be  made  adequate.  The  growth  of  the  business  district  and  the 
profit  to  be  derived  by  serving  this  enlarged  territory  with  a  Subway  system  carrying 
many  of  its  passengers  but  short  distances,  is  the  line  of  development  which  holds 
the  greatest  promise. 

The  earnings  of  the  present  Subway  are  at  the  rate  of  five  cents  for  each  passen- 
ger carried,  while  the  expenses  are  in  proportion  to  the  car  miles  operated.  It, 
therefore,  should  serve  as  many  different  passengers  as  possible  with  the  most  advan- 
tageous distribution  of  car  miles.  Every  empty  car  carried  means  either  a  sacrifice 
of  the  service  that  can  be  rendered  during  the  rush  hour  period  or  an  increase  in 
the  car  mileage  with  a  corresponding  reduction  of  the  return  on  the  investment. 

To  make  a  comprehensive  Subway  system  pay  a  fair  return  on  the  investment,  the 
income  from  passenger  traffic  should  average  about  one  cent  per  passenger  mile. 
Passengers  carried  more  than  5  miles  and  thus  contributing  less  than  one  cent  per 
mile  must  be  balanced  by  other  passengers  traveling  less  than  five  miles  and  thus 
contributing  an  amount  proportionately  greater  than  one  cent  per  passenger  mile. 

EXPENSES. 
The  total  cost  of  operating  a  Subway  may  be  divided  as  follows : 
1 — Operating  Expenses. 

A — Maintenance  Expenses; 

a — Maintenance  of  Way  including  Tracks,  Stations  and  Subway ; 


8 

b — Maintenance  of  Equipment  including  Signal  System,  Electrical  Con- 
ductors, Rolling  Stock,  and  Repair  Equipment ; 

c — Maintenance  of  Power  Plant  including  Power  Houses  and  Sub- 
stations. 

B — Transportation  Expenses  ; 

a — Wages  of  Conductors,  Motormen  and  Guards; 

b — Wages  of  Platform  men,  Agents,  Gatemen,  and  Porters; 

c — Otber  Transportat'on  Expenses. 
C — Power  Expense,  including  Labor,  Fuel,  and  Supplies  at  Power  House  and 

Sub-stations. 
D — General  Expenses  including  Damages  and  Insurance. 

2 — Interest  and  Sinking  Fund  on  Permanent  Way. 

In  case  of  the  present  Subway,  the  money  supplied  by  the  City  for  permanent 
way  bears  an  annual  interest  charge  of  an  average  of  about  4%  and  an 
annual  sinking  fund  charge  of  1%  making  a  total  annual  charge  of  about 

5%. 

3 — Interest  on   Investment  of  Company  including  Equipment. 

This  charge  will  vary  from  4%  to  6%  depending  upon  financial  conditions. 
4 — Depreciation  Reserve. 

With  the  present  Subway,  no  depreciation  reserve  fund  has  yet  been  provided. 
5 — Taxes. 

With  the  present  Subway  the  taxes  are  nominal,  being  only  $60,000  per  year. 
A  study  of  the  records  of  operating  expenses  as  shown  by  Table  1  can  be  made 
to  advantage  if  each  item  is  examined  with  the  idea  of  determining  how  much  can  be 
saved  by  taking  advantage  of  every  possible  economy  and  also  what  effect  each  indi- 
vidual improvement  will  have  on  the  total  operating  cost. 

1 — Operating  Expenses. 

A — Maintenance    Expense. 

The  table  shows  that  for  the  year  ended  June  30th,  1908,  the  expenses 
for  maintenance  were  as  follows: 

A — a  Maintenance    of    Way 1 .  18  cents  per  car  mile 

b  Ma'ntenance    of    Equipment 1.87  cents  per  car  mile 

c  Maintenance   of   Power   Plant .35  cents  per  car  mile 

Total   Expense   for   Maintenance 3.40  cents  per  car  mile 

This  maintenance  expense,  which  increased  considerably  during  the  second  year 
has  been  decreased  during  the  past  year,  indicating  that  these  expenses  do  not  neces- 
sarily increase  with  the  age  of  the  Subway. 

Careful  management  will  tend  to  keep  the  maintenance  items  down  and  an  invest- 
ment in  an  efficient  repair  equipment  would  be  justified. 


Every  car  operated  one  mile  will  entail  a  corresponding  maintenance  expense;  that 
is,  the  unit  cost  per  car  mile  of  these  three  items  of  maintenance  is  practically  inde- 
pendent of  the  number  of  car  miles  operated  and  will  not  decrease  materially  as  the 
number  of  car  miles  increase. 

In  this  respect  these  items  may  be  classed  with  two  other  items  which,  for  the 
same  period,  were  as  follows : 

B — Wages  of  Conductors,  Motormen  &  Guards 1.79  cents  per  car  mile 

C — Power    Supply 2.38  cents  per  car  mile 

The  unit  cost  per  car  nv'le  of  both  the  wages  of  the  trainmen  and  the  expense  of 
supplying  energy  to  the  cars  will  be  practically  constant  whatever  the  number  of  car 
miles  operated.  Taking  these  last  two  items  ar.d  adding  them  to  the  first  three  items, 
we  have  a  charge  of  7.57  cents  per  car  mile  which  cannot  be  decreased  by  any 
appreciable  amount  by  running  more  car  miles  but  which  can  be  avoided  entirely  every 
time  a  car  can  be  prevented  from  running  a  useless  mile.  The  problem  therefore,  to 
reduce  the  influence  of  these  charges,  is  to  run  as  few  non-productive  car  miles  as 
possible. 

For  instance,  there  are  1.870,000  cars  running  each  year  on  the  Lenox  Avenue 
branch  which  are  diverted  a  distance  of  .85  mile  in  order  to  use  the  Broadway  tracks, 
between  103rd  Street  and  42nd  Street.  If  these  cars  could  be  carried  down  Madison 
Avenue  from  Lenox  Avenue  and  West  110th  Street  to  Grand  Central  Station,  a  saving 
in  useless  car  movement  amounting  to  1.589,500  car  miles  would  be  effected  which 
at  7.57  cents  per  car  mile  means  an  annual  economy  of  $120,325.15.  This  amount  added 
to  the  probable  net  earnings  of  the  cut  off  itself  would  probably  more  than  justify  the 
investment  of  the  cut  off  and  in  addition  decrease  the  present  running  time  between 
The  Bronx  and  the  Battery. 

There  are  also  fully  1,000,000  useless  car  miles  run  every  year  which  result  from 
the  lack  of  a  storage  space  in  lower  Manhattan  for  the  use  of  cars  which  now  travel 
one  way  practically  empty  before  or  after  each  rush  hour  period.  In  building  future 
Subways,  the  need  of  a  .storage  space  to  act  as  a  reservoir  for  cars  used  only  in  serving 
the  peak  load  should  be  carefully  considered.  Even  where  a  Subway  is  provided 
with  enough  tracks  to.  carry  the  same  number  of  cars  in  both  directions,  the  investment 
in  a  storage  space,  say  under  Battery  Park,  would  be  justified,  but  when  an  odd  track 
is  to  be  provided  for  handling  the  rush  hour  traffic,  in  one  direction  in  the  morning 
and  in  the  other  direction  at  night,  the  cost  of  the  storage  tracks  would  be  less  than 
the  cost  of  an  additional  track  the  entire  length  of  the  road  and  the  saving  effected 
by  the  elimination  of  the  useless  car  miles  which  will  be  avoided  by  storing  the  cars 
during  the  day  will  result 'in  an  added  economy. 

There  are  useless  car  miles  run  at  present  resulting  from  the  fact  that  many  of 
the  trains  have  a  large  number  of  vacant  seats  at  the  extreme  ends  of  the  line.  With 
the  present  Subway  at  least  2,000,000  car  miles  of  empty  cars  are  operated  each  year 
because  it  is  impracticable  at  present  to  couple  up  the  cars  quickly.     When  a  method 


10 

of  more  quickly  making  up  trains  has  been  perfected  it  will  be  possible  to  add  or  sub- 
tract cars  to  or  from  a  train  at  intermediate  stations  and  thus  avoid  the  useless  waste 
of  power,  trainmen's  time  and  equipment  involved  in  carrying  many  of  the  full  length 
trains  to  the  extreme  ends  of  the  branches. 

Under  present  operating  conditions  it  requires  too  long  a  time  to  make  and  break 
the  mechanical,  electrical  and  air  connections  between  the  cars.  This  operation  now 
requires  from  one  to  two  minutes,  as  all  of  the  couplings  are  made  by  hand.  When  it 
is  finally  realized  that,  in  order  to  operate  Subways  successfully,  every  economy  must 
be  carefully  developed  the  advantage  of  being  able  to  make  up  and  break  up  a  train 
so  as  to  avoid  running  full  length  trains  out  to  the  extreme  ends  of  the  lines  will  be 
appreciated  and  all  of  the  coupling  devices  will  be  made  automatic  so  as  to  reduce  to  a 
minimum  the  delays  at  the  junction  stations. 

If  for  no  other  reason  than  to  allow  the  greatest  flexibility  in  making  up  trains  of 
various  lengths  at  terminal  stations,  as  well  as  at  the  junction  points  of  two  or  more 
lines,  the  principle  should  be  adopted,  with  future  Subways,  of  providing  each  car  with 
motors. 

At  the  present  time,  only  60%  of  the  Subway  cars  are  motor  cars,  the  remaining 
cars  being  trailers.  Thus,  in  a  3-car  train  there  are  2  motor  cars ;  in  a  5-car  train  3 
motor  cars  and  in  an  8-car  train,  5  motor  cars — but  the  make  up  of  the  trains  is  thus 
confined  to  3,  5,  or  8  cars.  With  motors  on  each  car,  the  trains  could  be  made  up 
equally  as  well  with  any  number  of  cars  and  the  decided  changes  in  sizes  of  trains 
that  now  occur  in  the  rate  of  car  movement  where  the  length  of  trains  is  changed 
at  certain  times  of  the  day,  could  be  made  more  gradual. 

With  the  present  Subway  these  three  sources  of  useless  car  miles  show  a  total  of 
over  4,500,000  car  miles  a  year  or  about  10%  of  the  total  number  of  car  miles  operated. 
If  all  these  car  miles  could  be  cut  off,  the  annual  saving  at  the  rate  of  7.57  cents 
per  car  mile  would  amount  to  $320,000. 

OPERATING  EXPENSES. 

There  are  some  items  of  operating  expenses  which  vary  inversely  as  the  number 
of  car  miles.    These,  in  the  present  Subway,  are  as  follows : 
Bb — Wages     of     Platform     men,     Agents,     Gatemen, 

Porters,    etc .84  cents  per  car  mile. 

Be — Other  Transportation  Expenses 95  cents  per  car  mile. 

C  — General    Expenses    69  cents  per  car  mile. 

Total 2.48  cents  per  car  mile. 

With  a  given  Subway  the  greater  the  number  of  car  miles  operated  the  less  will 
be  the  expenses    per  car  mile  for  these  three  items.     For  instance,  with  the  present 


II 

Subway,  if  twice  as  many  car  miles  could  be  operated  the  total  expense  represented  by 
these  items  would  remain  about  the  same  and  the  unit  cost  of  these  items  per  car 
mile  would  be  only  about  one  half  what  it  is  at  present.  These  three  items  will  show 
the  results  of  efficient  management  to  a  considerable  degree — but  the  best  way  to  re- 
duce their  importance  relative  to  the  total  operating  expense  is  to  operate  as  many 
car  miles  as  can  be  used  to  advantage. 

The  actual  operating  expenses  per  car  mile  are  thus  divided  into  two  classes  of 
expenses.  The  first  class  consists  of  those  items  which  remain  practically  the  same 
irrespective  of  the  number  of  car  miles  operated.  That  is,  the  cost  of  maintenance, 
train  men,  and  power  which  are  the  items  in  the  first  class  and  which  in  the  case  of  the 
present  Subway  amounts  to  a  total  of  7.57  cents  per  car  mile  cannot  be  reduced  to 
any  great  extent  by  running  more  cars.  The  second  class  consist  of  those  items  of 
operating  expense  which  are  general  and  which  therefore  become  less  per  car  mile  as 
soon  as  more  car  miles  are  run.  In  the  case  of  the  present  Subway,  this  second  class 
of  items  which  consist  of  station  charges  and  general  expenses  amounts  to  2.48  cents 
per  car  mile. 

The  total  of  the  two  classes  thus  amounts  to  (7.57  +  2.48)  or  10.05  cents  per  car 
mile.  Little  can  be  done  in  the  future  operation  of  the  present  Subway  or  in  the 
design  of  future  Subways' to  cut  down  materially  the  cost  per  car  mile  of  the  items  of 
the  first  class.  Efficient  management  and  the  design  of  a  Subway  which  will  allow 
the  running  of  a  greater  number  of  trains  upon  each  track  will  cut  down  the  cost  per 
car  mile  of  the  items  of  the  second  class — but  this  part  of  the  expense  is  proportion- 
ately small.  » 

Analysis  or  thf  Fixed  Charges. 
The  annual  charges  are  as  follows — 
Interest  on  the  Cost  of  Permanent  Way. 
Sinking  Fund  on  Investment  in  Permanent  Way. 
Interest  on  the  Investment  in  Equipment. 
Depreciation  on  Equipment. 
Taxes. 

All  of  these  items  can  be  reduced  by  keeping  down  the  original  cost  of  con- 
struction. 

Limiting  the  Investment  in  Permanent  Way. 

Under  New  York  City  conditions,  a  Subway  costs,  approximately,  three  times  as 
much  to  build  as  the  present  elevated  roads,  and  it  should  handle  considerably  more 
traffic  than  an  elevated  road  of  corresponding  length.  It  should  therefore  be  apparent 
that  Subways  should  be  constructed  only  where  there  will  be  sufficient  density  of 
traffic  to  justify  such  an  expensive  type  of  construction. 


12 

The  approximate  costs  of  one  mile  of  single  track — exclusive  of  equipment,  pozver 
plants  and  electrical  conductors,  for  different  kinds  of  construction  in  the  vicinity  of 
New  York  City  are  as  follows — 

Cost  per  Mile  of  Single  Track. 

f , A , 

From     Low        to        High 

Surface    Railway    (for   overhead   trolley) $20,000  $30,000 

Add   for  Asphalt   paving   or $12,000 

Granite    Block   paving $20,000 

Cost    of   surface    road $32,000  to  $50,000 

Cost  of   Conduit  road,   including  same  allowances   for   paving $80,000  to  $120,000 

Elevated   Railroad    $200,000  to  $300,000 

Subway $600,000  to  $900,000 

Tunnel    under    River ' $1,200,000  to  $1,800,000 

These  figures,  which,  as  before  stated,  do  not  include  the  cost  of  car  equipment, 
power  station  equipment,  or  transmission  system,  for  the  reason  that  such  investment 
depends  upon  the  car  miles  operated,  indicate  that  to  operate  an  elevated  passenger 
road  and  keep  the  fixed  charges  per  car  mile  for  permanent  way  within  reasonable  limits 
the  passenger  traffic  should  be  about  3  times  that  which  would  justify  a  surface  conduit 
system.  To  support  a  Subway,  the  travel  should  be  about  3  times  the  minimum  travel 
that  would  justify  the  building  of  an  elevated  road;  and  to  maintain  a  tunnel,  the 
length  of  haul  must  either  be  very  short  or  tbe  passenger  movement  through  it  must  be 
of  great  magnitude.  Due  allowance  must  always  be  made  for  possibilities  of  develop- 
ment— but  when  the  promise  of  a  reasonably  early  growth  in  traffic  does  not  exist  the 
more  expensive  forms  of  permanent  way  cannot  be  justified  from  a  strictly  commer- 
cial point  of  view. 

The  extension  of  the  Subway  type  of  construction  into  outlying  districts  which 
for  some  years  after  the  Subway  is  built  will  not  pay  interest  on  the  investment  is 
an  annual  burden  and  the  present  Subway  is  seriously  handicapped  by  such  a  burden. 
Subways  are  eminently  adapted  for  main  line  traffic  but  not  for  branch  lines.  Feeder 
lines  to  the  Subways  should  consist  of  elevated  roads  or  of  lines  located  in  open 
cuts — fed  in  turn  by  surface  lines.  In  order  to  get  a  proper  return  on  the  large  invest- 
ment required  for  Subway  construction,  the  tracks  of  the  Subway  must  be  used  to 
their  maximum  efficiency,  particularly  during  rush  hours.  To  get  three  times  as  many 
cars  over  one  track  in  a  Subway  as  are  now  run  on  one  track  of  an  elevated  structure, 
means  long  trains  at  frequent  intervals.  If  7-car  trains  on  2-minute  headway  (210 
cars  per  hour)  are  found  possible  on  one  elevated  road,  then  10-car  trains  on  1 -minute 
headway  (600  cars  per  hour)  must  be  provided  for  in  the  Subway  to  put  the  earning 
power  of  the  Subway  method  of  transportation  on  the  same  basis  as  that  of  the  present 
Elevated  system. 

In  general,  then,  a  Subzvay  should  be  built  to  take  the  place  of  three  elevated  lines 
and  the  outlying  districts  can  not  be  relied  upon  to  support  a  Subzvay  until  the  traffic 


13 

t^hich  originates  in   the  district  added  to   the  traffic  which  passes  through  the  district 
is  sufficient  to  justify  three  elevated  lines  of  the  present  type. 

Interest  on  the  Cost  of  Permanent  Way. 

There  arc  difficulties  in  the  way  of  determining,  just  at  the  present  time,  the  exact 
charge  to  be  made  per  car  mile  for  interest  on  the  cost  cf  the  permanent  way  of  the 
present  Subway.  All  of  the  charges  against  this  account  have  not  been  adjusted;  parts 
of  the  Subway  have  not  been  in  operation  for  a  complete  year,  while  other  parts,  such 
as  the  Brooklyn  branch,  have  been  designed  and  built  to  provide  for  future  exten- 
sions, and,  therefore,  represent  a  comparatively  larger  investment  than  would  be 
justified  by  present  traffic.  Safer  conclusions  can  be  drawn  by  considering  a  Subway 
similar  to  the  present  Subway,  but  ending  at  the  Battery,  thus  eliminating  the  expensive 
tubes  under  the  East  River  and  the  complicated  system  of  tracks  at  the  Brooklyn  end. 
The  cost  of  constructing  the  permanent  way  of  a  Subway  equal  in  mileage  to  the 
present  Subway  tracks  in  the  Boroughs  of  Manhattan  and  The  Bronx  may  be  taken  at 
$50,000,000.  In  addition  to  this  investment,  it  would  be  necessary  to  equip  the  Subway 
with  rolling  stock  and  repair  equipment,  power  house,  substation,  signal  system,  and 
electrical  distributing  systems,  and  the  cost  of  .this  "equipment"  would  add  $25,000,000 
to  the  investment. 

The  performance  of  the  present  Subway  shows  that  50,000,000  car  miles  can  be 
operated  to  advantage  in  that  part  of  the  Subway  on  the  Manhattan  side  of  the  East 
River  tunnels,  that  is,  one  car  mile  per  year  may  be  expected  for  each  dollar  invested 
in  permanent  way,  and  two  car  miles  per  year  for  each  dollar  invested  in  "equipment." 
In  other  words,  the  total  investment  in  a  Subway  similar  to  the  present  Subway,  not 
including  the  Brooklyn  tunnels  and  extension,  may  be  taken  at  $75,000,000  for  both 
permanent  way  and  equipment.  A  Subway  of  the  present  design  could  operate  about 
50,000,000  car  miles  per  year  upon  that  part  of  its  road  which  could  be  built  and 
equipped  for  $75,000,000,  so  that  the  total  investment  would  be  approximately  $1.50 
for  each  car  mile  per  annum. 

Upon  a  large  part  of  the  cost  of  the  permanent  way  the  present  operating  com- 
pany is  paying  interest  at  the  rate  of  4%  per  year,  which  is  at  the  rate  of  4  cents  per 
car  mile  for  interest  charges  on  the  cost  of  permanent' way  only.  If  the  construction 
funds  had  been  provided  by  a  private  company  the  interest  cost  per  car  mile  would 
probably  not  have  been  less  than  5  or  6  cents.  If  all  of  the  money  furnished  by  the 
City  for  the  permanent  way  could  have  been  secured  at  3;%%,  the  cost  per  car  mile 
for  this  interest  would  be  3.5  cents.  To  reduce  to  a  minimum  the  effect  of  this  interest 
charge  per  car  mile  the  rate  of  interest  must  be  low,  the  initial  cost  of  future  Subways 
must  be  made  less,  or  the  number  of  car  miles  which  can  be  operated  over  a  given 
permanent  tvoy  must  be  considerably  increased.  This  item  of  annual  interest  charge 
upon  the  permanent  way  offers  more  opportunities  for  improving  the  financial  stand- 
ing of  a  Subway  system  than  any  other  item  so  far  discussed. 


14 

For  instance,  with  the  present  Subway,  fully  30%  of  the  investment  is  in  branch 
lines  which  arc  operated  at  a  loss.  If  these  branches  could  be  eliminated,  or  if  the 
first  cost  of  these  unprofitable  branches  could  be  charged  proportionately,  by  special 
assessment,  directly  upon  the  property  benefited  by  them,  then  this  interest  charge  on 
permanent  way  would  be  reduced  by  30%  or  from  4  cents  to  2.8  cents  per  car  mile, 
thus  effecting  a  saving  of  1.2  cents  per  car  mile. 

If,  instead  of  adopting  the  Subway  type  of  construction  for  a  large  part  of  these 
branch  lines,  an  elevated  road  is  built,  then  the  cost  per  car  mile  for  permanent  way 
will  be  reduced  in  the  proportion  that  the  saving  in  first  cost  bears  to  the  total  cost. 

If,  further,  future  Subways  could  be  built  with  a  much  greater  carrying  capacity 
in  proportion  to  the  amount  invested  in  permanent  way  as  suggested  in  Report  No.  4 
on  "The  Capacity  of  the  Subway"  then  this  unit  charge  of  4  cents  per  car  mile  for 
interest  on  permanent  way  can  be  reduced  to  less  than  3  cents  per  car  mile  without 
any  change  in  the  rate  cf  interest  carried  by  the  present   Subway. 

Sinking  Fund  for  the  Investment  in  Permanent  Way. 
What  has  been  said  in  regard  to  the  interest  charges  on  permanent  way  applies 
equally  well  to  the  annual  sinking  fund  charge  on  this  same  investment.  The  arrange- 
ment with  the  City  by  which  most  of  the  money  for  permanent  way  of  the  present  Subway 
was  raised  provides  for  a  sinking  fund  of  1%  per  annum  on  that  part  of  the  invest- 
ment. On  a  basis  of  50,000,000  car  miles  with  an  investment  of  $50,000,000  this  sinking 
fund  of  1%  per  annum  amounts  to  1  cent  per  car  mile.  Thus  with  the  present  Subway 
the  investment  in  permanent  way  is  approximately  at  the  rate  of  one  dollar  invested  in 
initial  cost  to  produce  the  capacity  necessary  to  operate  one  car  mile  per  year;  i.  e.,  a 
$50,000,000  investment  in  permanent  way  may  permit  the  operation  of  approximately 
50,000,000  car  miles  per  year.  In  future  Subways,  it  is  not  unreasonable  to  expect 
that  2  car  miles  should  be  operated  for  every  dollar  expended  for  permanent  way  and 
thus  the  sinking  fund  charge  be  reduced  to  0.5  cent  per  car  mile. 

Interest  on  Investment  in  Equipment. 

The  investment  for  the  equipment  of  a  Subway  similar  to  the  present  Subway  in 
Manhattan  and  the  Bronx  may  be  taken  at  approximately  $25,000,000.  As  this  money 
was  not  raised  by  means  of  the  City's  credit  the  interest  charge  may  be  taken  at  6%  per 
annum,  as  this  is  about  as  low  as  money  usually  costs  a  private  corporation  after  paying 
brokerage  and  other  expenses  incidental  to  securing  it.  On  the  basis  of  50,000,000  car 
miles,  this  interest  charge  upon  equipment  amounts  to  3  cents  per  car  mile. 

This  interest  charge  is  upon  the  cost  of  the  power  plant,  substations,  electrical 
distribution  systems,  signal  system,  rolling  stock  and  the  repair  equipment.  The  origi- 
nal cost  of  all  of  this  equipment  increases  directly  as  the  car  miles  increase;  that  is, 
the  unit  cost  per  car  mile  will  be  practically  the  same  irrespective  of  the  number  of 
car  miles  operated,  provided  that  the  distribution  of  load  throughout  the  day  is  rela- 
tively the  same  in  all  cases. 


15 

The  most  effective  way  of  reducing  the  importance  of  this  charge  for  interest  on 
the  equipment  therefore  must  be  by  reducing  the  rate  of  interest.  If  the  money  for  the 
first  cost  of  the  equipment  had  been  raised  on  municipal  bonds,  or  in  any  other  way, 
at  the  same  rate  (i.e.  4%)*  as  the  money  invested  in  permanent  way,  then  the  unit  cost 
would  be  reduced  from  3  cents  to  2  cents  per  car  mile,  a  saving  of  1  cent  per  car  mile. 
This  method  of  financing  the  cost  of  the  equipment  would  therefore  result  in  a  con- 
siderable reduction  in  the  annual  charges. 

Depreciation. 

In  the  accounting  system  used  with  the  present  Subway,  the  item  of  depreciation 
upon  equipment  is  not  recognized.  In  my  opinion,  this  policy  or  perhaps  lack  of  policy 
is  a  serious  mistake,  as  it  is  certain  that  if  all  of  the  surplus  earnings  are  disbursed 
each  year  in  the  form  of  dividends  and  no  allowance  is  made  for  depreciation,  there 
will  come  a  time  when  renewals  must  be  made  either  at  the  expense  of  the  stock- 
holders or  at  a  sacrifice  of  the  service,  which  can  and  should  be  maintained  for  future 
patrons  of  the  Subway  system. 

Just  how  much  the  allowance  for  depreciation  should  be  cannot  be  determined 
without  a  careful  study  of  the  conditions  in  each  particular  case.  An  investigation 
will,  no  doubt,  reveal  the  fact  that  there  are  parts  of  the  structure  and  perhaps  also 
of  the  equipment  which  can  be  maintained  up  to  full  working  value  and  upon  which  the 
reserve  for  depreciation  may  be  neglected — but  this  same  study  will  also  show  that 
there  are  other  parts  which  are  depreciating  in  such  a  way  as  to  require  an  annual  re- 
serve to  provide  for  eventual  renewals. 

For  instance  the  wooden  cars  should  be  removed  from  the  Subway  but  apparently 
no  way  of  financing  this  loss  has  been  adopted.  These  cars  were  the  best  cars  that 
could  be  secured  at  the  time  the  Subway  was  designed,  but  shortly  after  they  were  built 
metal  cars  were  developed.  Of  about  850  cars  in  the  Subway  500  are  of  this  wooden 
or  composite  type.  The  original  cost  of  these  composite  car  bodies  was  $3,350.  each 
and  new  metal  bodies  to  replace  them  will  cost  about  $5,500.  each.  The  difference 
between  the  cost  of  new  metal  cars  and  the  original  cost  new  of  the  composite  cars 
should  be  charged  to  capital  account  but  the  difference  between  the  original  cost  of 
the  composite  car  and  its  scrap  value  as  it  leaves  the  Subway  should  be  considered 
a   loss  and   be  offset  by  a  depreciation   reserve. 

In  the  course  of  time  the  same  procedure  would  make  it  possible  to  replace  the 

signal  system;   the  braking  equipment  and  parts  or  all  of  the  power  plant,   as  these 

various   parts   of   the   equipment  become   obsolete   on    account   of   the   advance   in   the 

art.     If  an  annual  appropriation  is  not  taken  out  of  the  surplus  each  year  for  depre- 

*  The  money  in  the  present  Subway  was  raised  at  different  times  and  in  different  amounts,  by 
means  of  bonds  carrying  interest  rates  ranging  from  3%  to  4#%,  but  averaging  about  3]4%.  In 
order  to  be  conservative,  4%  has  been  assumed  in  this  analysis  as  a  rate  which  would  undoubtedly 
secure  money  upon  municipal  credit,  and  6%  as  a  rate  which  would  secure  money  upon  the  bonds  of 
a  private  company,  these  rates  covering  the  total  cost  including  brokerage  for  securing  money  for 
construction  purposes. 


i6 

elation  purposes,  it  will  be  impossible  to  keep  the  equipment  up  to  the  highest  standard 
without  charging  renewals  to  capital  account. 

There  are  a  number  of  electrical  traction  properties  which  have  set  a  very  com- 
mendable precedent  by  crediting  a  certain  amount  of  their  income  annually  to  a 
depreciation  reserve  account,  among  them  being  The  United  Railways  Company  of 
St.  Louis,  Mo.,  The  Milwaukee  Light,  Heat  &  Power  Company  of  Milwaukee,  Wis., 
as  well  as  all  the  surface  railway  companies  in  Chicago  which  are  now  operating  under 
the  recently  granted  ordinances  under  which  the  city  and  the  companies  are  jointly 
interested  in  the  net  profits  of  the  company. 

While  this  question  of  depreciation  in  connection  with  the  present  Subway  is 
evidently  being  neglected,  it  is  essential  that  the  item  of  depreciation  should  be  con- 
sidered in  analyzing  the  possibilities  of  a  fair  return  on  the  investment.  I  assume  that 
the  accounting  system  for  the  future  operation  of  Subways  will  conform  to  the  ac- 
counting system  adopted  by  your  Commission  and  as  this  system  includes  a  deprecia- 
tion account,  I  feel  warranted  in  recognizing  this  ch:irge  in  this  analysis. 

RECAPITULATION    OF    POSSIBLE    SAVINGS. 

We  are  now  in  a  position  to  reach  some  conclusions  regarding  the  design  of 
future  Subways  by  reviewing  the  entire  problem  of  making  a  sub-surface  system  of 
transportation  pay  a  fair  return  on  the  investment  even  with  the  fare  limited  to  the 
uniform  amount  of  five  cents  per  passenger. 

In  the  following  recapitulation  the  cost  of  operating  the  present  Subway  is  first 
shown  in  each  case,  the  figures  of  operating  expenses  being  taken  from  the  record 
of  the  year  ending  June  30th,   1908. 

The  extreme  theoretical  reduction  in  cost  that  can  reasonably  be  expected  is 
shown  in  the  second  column  and  the  final  column  is  intended  to  indicate  the  lowest 
probable  practical  limit  of  cost  that  can  be  attained  in  the  operation  of  future 
Subways  under  the  most  favorable  conditions.  All  figures  are  given  in  the  unit  of 
cents  per  car  mile. 

Comparative  Operating  Expenses. 

Cost  in  cents  per  car  mile. 

, , A . 


Present        Possible      Future 
Subway         Saving       Subway 


Maintenance    of    Way 1.18  .18  1.00 

The  reduction  is  due  to  the  possibility  of  operating  more 
cars  than   is  done   at  present   over   each   track. 

Maintenance    of    Equipment 1 .87  .27  1 .60 

The  saving  shown  may  be  accomplished  by  providing  the  most 
economical   repair  shop  equipment. 

Maintenance  of   Power    Plant .35  .10  •  .25 

Very  little  saving  is  to  be  expected  except  that  due  to  run- 
ning more  cars  or  providing  slightly  less  reserve  machinery  than 
has  been  thought  best  with  the  present  Subway. 


17 


Cost  in  cents  per  car  mile. 

■ 1 _ — a , 


Present 
Subway 


Possible      Future 
Saving      Subway 


Wages    of   Trainmen 1.79  .04  1.75 

The    only    reduction    that   can    be   expected   in    this    item   will  '  \ 

be  due  to  efficiency  in  the  management  of  the  men  and  trains,  and 
not  in  the  reduction  of  the  cost  of  labor.  Every  car  mile 
operated  will  require  its  quota  of  trainmen. 

Wages  of  Station  men .84  .34  .50 

All  station  expenses  per  car  mile  will  become  less  as  the 
volume  of  traffic  increases. 

Other    Transportation    Expenses. ..  .^ .95  .40  .55 

This  item  also  diminishes  as  the  number  of  car  miles  in- 
creases, although  the  reduction  cannot  be  expected  in  the  same 
proportion  as  the   increase  in   car  miles. 

Power  Expenses    2.38  .20  2.18 

Every  car  moved  one  mile  will  require  approximately  the 
same  amount  of  power,  unless  the  average  speed  is  reduced. 
Some    slight    economy    may    be    expected    with    increase    in    load. 

General   Expenses   .69  .25  .44 

This  item  will  become  smaller  as  the  car  miles,  increase,  as 
the  total  expenses  are  divided  among  a  larger  number  of  car 
miles. 

Total    Operating    Expenses 10.05  1.78  8.27 

The  total  probable  saving  in  operating  expenses  is  less  than 
2  cents  per  car  mile,  and  the  lowest  limit  to  which  these  ex- 
penses can  be  reduced  is  8.27  cents  per  car  mile.  As  the  fullest 
limit  of  economy  cannot  be  expected  with  every  item  in  any  one 
case,  it  is  probable  that  9  cents  per  car  mile  represents  the 
lowest  practicable  operating  cost,  in  the  present   state   of  the   art. 


Comparative  Fixed  Charges. 


Subway 

Similar  to  Possible 
Present  Saving. 
Subway 


Future 
.Subway 


The   first  column   shows   the   results  that   can    be    obtained   by 
operating   50,000.000    car   miles   in   a    Subway   in    which    the   perma- 
nent   way    cost   $50,000,000   and   the   equipment    $25,000,000,    which 
is  approximately  the  ratio  with  the  present  Subway. 
Interest    on    Permanent    Way 

This    item    can    be    limited    by    keeping    down    the    investment 
and   by  operating  the   tracks  up   to   their   fullest   limit   of  capacity 
during   rush   hours. 
Sinking   Fund   for   Permanent    Way 

This  item  can  be  reduced  in  the  same  proportion   as  the  pre- 
vious one.      The  1%   determined  upon  as  the  rate  for  sinking  fund 
with  the   present    Subway  is  not   any   too   large. 
Interest     on    Equipment 

By  reducing  the  rate  of  interest  from  6%  to  4%,  a  consider- 
able saving  can  be  effected.  If  the  policy  of  providing  funds  for 
the  equipment  by  means  of  the  City  credit  could  be  followed  the 
saving  in  interest  per  car  mile  would  go  far  toward  providing  an 
adequate  depreciation  reserve  for  the  replacement  of  this  equip- 
ment. 
Total    for    Fixed    Charges 

It   will   be    seen   that    the    possibilities    for    saving    are    nearly 
twice  as  great  with  the  fixed  charge  accounts  as  with  the  operat- 
ing  expense   items. 
Total   Cost,   Including  Both   Operating  Expenses  and   Fixed   Charges.. 

The  sum  total  of  all  the  possible  economies  amounts  to  5.28 
rents  per  car  mile,  or  30%  of  the  total  average  cost  of  oper- 
ating each  car  mile  in  a  Subway  similar  to  the  present  Subway. 
As  the  lowest  limit  can  only  be  secured  by  strict  economy  in 
investment  and  in  operation,  which  in  some  cases  might  reduce 
the  quality  of  the  service  supplied,  it  will  be  better  to  assume 
a  medium  figure  of  between  14  and  15  cents  per  car  mile  as 
the  low  practicable  limit  which  can  eventually  be  expected  with 
future  Subways.  With  the  present  Subway  it  will  be  difficult 
to  introduce  sufficient  economies  to  reduce  the  total  cost  per  car 
mile  to  less  than   17.5  cents. 


Costs  in  Cents  per  Car  Mile. 


0.5 


0.5 


18.05 


3.5 


5.28 


4.5 


12.77 


i8 
Recapitulation  of  Estimates  for  Future  Operations. 


Subway- 
Similar  to    Future 
Present     Subway. 
Subway. 


Cost  in  Cents  per 

Income  per  Car   Mile —  Car  Mile. 

From  passenger   operation   only 23  18 

From  advertising,  sale  of  power,   etc 1  1 

Total   gross  income  per  car  mile 24  19 

Operating  Expenses   10  9 

Net   Earnings    14  10 

Fixed  Charges  7.5  5.5 

Surplus  to  be  applied  to  dividends  and  depreciation 6.5  4.5 

Depreciation  at  the  rate  of  3%  per  year  on^actual  investment  in  equipment....  1.5 

Surplus    for    profit 6.5  3 


From  the  foregoing  analysis  it  will  be  seen  that  in  order  to  pay  a  profit  of  6.5 
cents  per  car  mile  from  the  operation  of  a  Subway  similar  to  the  present  Subway,  it 
is  necessary  to ■  crozud  the  passengers  in  the  cars  so  that  the  average  income  from  pas- 
senger revenue  amounts  to  23  cents  per  car  mile.  Furthermore,  in  order  to  maintain 
this  profit  of  6.5  cents  per  car  mile,  which  in  the  case  of  the  present  Subway  is  now 
all  disbursed  as  dividends,  the  item  of  depreciation  on  the  equipment  must  be  entirely 
neglected. 

The  second  column  show's  that  if  changes  are  made  in  the  methods  of  financing, 
constructing  and  operating  Subways  it  is  possible  to  design  and  build  future  Sub- 
ways that  will  furnish  adequate  service  for  a  5  cent  fare  and  at  the  same  time  take  care 
of  depreciation  and  interest  on  the  investment.  That  the  service  can  be  adequate  is 
indicated  by  the  fact  that  the  income  per  car  mile  from  passenger  revenue  only  need 
not  be  more  than  18  cents,  instead  of  23  cents  as  required  under  present  conditions. 

In  order  to  produce  this  result  the  following  economies  must  be  secured : 

Saving  Per 
Car  Mile. 
•  1.     Reduce  the  investment  required  for  permanent  way  by  raising  by  spe- 
cial assessment  on  the  property  benefited  the  first  cost  of  all  branch 

lines.     The  saving  per  car  mile  would  approximate 1  cent. 

£.  Increase  the  earning  capacity  of  each  dollar  invested  in  permanent  way 
by  designing  the  stations  on  the  main  line  on  the  reservoir  principle, 
so    that   60   trains    an    hour    can    run    over    each    main    line    track. 

Practicable  saving  per  car  mile 1  cent. 

3  Effect  economies  in  operation  and  maintenance  and  reduce  relative  im- 
portance of  general  expenses  by  operating  more  cars  with  same 
organization  charges.     Saving  per  car  mile 1  cent. 


19 

Saving  Per 
Car  Mile. 

Raise  the  money  for  the  first  cost  of  the  equipment  on  a  basis  of  4% 
instead  of  6%,  either  by  using  the  City's  credit  or  otherwise.  Sav- 
ing per  car  mile 1  cent. 

If  all  the  investment  for  both  the  permanent  way  and  the  equipment 
could  be  secured  solely  upon  the  City's  credit,  the  "profit"  made  by 
the  operators  over  and  above  interest  charges  could  be  justly 
reduced,  as  the  operators  would  then  assume  no  financial  risk.  With 
the  present  Subway  which  pays  nominal  taxes  amounting  to  about 
$60,000  per  year  about  V/3  cents  of  every  5  cent  fare  goes  toward 
"profit."  If  the  City  furnished  the  money  for  the  equipment  as  well 
as  for  the  permanent  way,  then  this  profit  could  be  reduced  from  the 
present  rate  of  about  6.5  cents  per  car  mile,  as  shown  in  the  above 
table,  to  not  more  than  3  cents  per  car  mile.  At  this  rate  the  profit 
to  the  operators  would  amount  to  $1,500,000  per  year  on  the  basis 
of  50,000,000  car  miles.  Thus  the  saving  per  car  mile  to  the  Subway 
system  by  this  arrangement  would  amount  to  at  least 3.5  cents. 


The  above  statement  shows  the  relative  value  of  the  possible  economies  in  design 
and  operation  that  may  be  realized  in  connection  with  future  Subways.  The  sum  total 
of  all  the  savings  amounts  to  7.5  cents  per  car  mile,  but  as  it  may  not  be  practicable  to 
secure  the  full  measure  of  economy  indicated  as  possible  in  each  case,  the  total  saving 
may  be  taken  at  6.5  cents  per  car  mile.  As  a  "contra"  charge,  it  must  be  remembered 
that  a  depreciation  reserve  fund  should -be  provided  for  which  at  least  1.5  cents  a  car 
mile  must  be  allowed,  thus  reducing  the  net  saving  to  5  cents  per  car  mile ;  that  is, 
assuming  that  the  above  economies  are  effected,  future  Subways  may  be  maintained 
with  a  gross  average  income  per  car  mile  from  all  sources  of  19  cents,  instead  of  24 
cents,  as  at  present,  on  the  assumption  that  no  taxes  are  paid  in  either  case. 

If  future  Subways  are  taxed  upon  the  same  basis  as  the  present  Subway,  which. 
when  reduced  to  a  car  mile  basis  amounts  to  0.12  of  a  cent  per  car  mile,  future  Subways 
would  have  to  earn  19.12  cents  per  car  mile,  instead  of  19  cents,  as  above  stated,  but  if 
they  were  taxed  upon  the  same  basis  as  the  present  elevated  lines  of  the  City  of  New 
York  are  taxed,  which,  when  reduced  to  car  mile  basis,  is  about  3  cents*  per  car  mile, 
future  Subways  would  have  to  earn  22  cents  per  car  mile  instead  of  19  cents,  as  above 
stated. 

The  above  analysis  means  that  had  the  difficulties  of  Subway  construction  and 
operation  been  as  well  understood  at  the  time  that  the  present  Subway  was  constructed 
as  they  are  today  and  the  economies  above  suggested  been  then  embodied,  it  could 
have  rendered  more  satisfactory  service  with  its  present  revenue,  and  further  that  if 
the  above  suggested  economies  are  embodied  in  the  construction  of  future  Subways. 

*  Including  Franchise  Tax  which  has  not  been  paid. 


20 

such  Subways  may  be  constructed  into  somewhat  less  desirable  territory  than  that 
occupied  by  the  present  Subway  and  made  self-sustaining  on  a  fixed  five  cent  fare. 

Furthermore,  it  is  feasible,  even  if  all  of  the  above  economies  are  not  realized,  to  con- 
struct, operate  and  maintain  Subways  in  certain  localities  within  the  congested  districts 
of  the  City  of  New  York  and  operate  them  upon  a  five  cent  fare, — but  if  to  these  short 
haul  Subways  is  added  the  burden  of  a  long  haul  into  sparsely  settled  territory,  such 
Subways  as  a  whole  will  not  be  sufficiently  attractive  to  induce  private  capital  to 
construct  and  operate  them  unless  a  fare  somewhat  higher  than  the  present  five  cent 
fare  is  allowed  for  the  long  haul  passengers  for  at  least  a  period  of  years,  or  until  such 
time  as  the  local  traffic  builds  up  throughout  the  entire  length  of  the  Subway. 

In-  other  words,  it  seems  to  me  that  as  a  general  proposition,  these  short  haul 
Subways  cannot  be  divorced  from  the  long  haul  feature  and  that  consequently  with  the 
return  upon  the  investment  now  required  by  private  capital  there  is  now  no  field  in  New 
York  City  for  the  construction  of  a  comprehensive  system  of  Subways  entirely  zvith 
private  capital  unless  the  fare  for  the  long  haul  passenger  is  something  more  than  the 
present  five  cent  fare. 

If  it  were  possible  to  establish  a  fare  greater  than  five  cents  for  the  long  haul 
passenger,  the  solution  to  the  problem  would  be  simple  from  a  railroad  standpoint 
although  complicated  and  disadvantageous  to  the  public,  but  since  the  five  cent  fare 
is  now  the  legal  fare,  the  real  problem  is  how  to  get  Subzvays  and  maintain  this  five 
cent  fare. 

In  the  solution  of  this  problem  certain  methods  which  have  been  discussed  in  this 
report  seem  open  to  me  and  they  are  briefly  summarized  in  the  following: 

Conclusions. 

1st:  Raise  all  the  money  for  the  construction  and  equipment  of  such  portions  of 
future  Subways  as  can  be  shown  to  be  profitable  upon  the  City's  credit  and  at  the  lowest 
possible  rate  of  interest. 

2nd:  For  such  portions  of  the  system  as  are  clearly  unprofitable,  let  the  territory, 
the  value  of  which  is  enhanced  by  the  construction  of  the  Subways,  bear  the  burden  of 
the  initial  cost.  • 

3rd :     Eliminate  taxes  as  is  now  done  with  the  present  Subway. 

4th  :  Extend  the  refunding  period  for  the  retirement  of  the  cost  of  Subways  over 
as  long  a  period  as  practicable. 

5th  :  Design  the  express  stations  of  the  main  stems  of  such  Subways  upon  the 
reservoir  principle  so  as  to  secure  maximum  capacity  with  minimum  investment. 

6th :  Lay  out  a  comprehensive  system  of  transportation  and  begin  the  construction 
of  Subways  at  the  centre  of  the  congested  district  and  extend  outward  in  order  to  get 
the  benefit  of  the  short  haul  profits  before  assuming  too  much  of  the  long  haul  burden, 
and  in  connection  with  the  short  haul  business  investigate  carefully  the  possibilities 
of  moving  platforms  for  the  local  tracks. 


21 

7th  :  Take  advantage  of  specific  cases  where  railroad  companies  desiring  to  secure 
terminals,  the  indirect  value  of  which  to  them  is  great,  may  be  willing  to  contribute 
largely  to  the  cost  of  building  portions  of  a  comprehensive  Subway  system. 

8th :  Lease  the  operating  privileges,  under  proper  public  supervision,  to  an  oper- 
ating company  upon  the  basis  of  an  agreed  compensation  per  car  mile, — the  number 
of  car  miles  to  be  operated,  which  is  the  measure  of  service,  to  be  determined  by 
dividing  the  income  from  the  traffic  by  the  total  cost  of  operating  a  car  mile,  the  income 
to  be  sufficient  to  provide  for  operating  expenses,  including  maintenance,  fixed  charges 
and  depreciation,  and  leave  sufficient  margin  to  sufficiently  compensate  the  operating 
company  so  as  to  secure  the  highest  class  of  skill  and  efficiency  in  operation. 


14  DAY  USE 

TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 

Renewed  books  are  subject  to  immediate  recall. 


^* 


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LD  21A-60m-3,'65                             TT  .^oeml  Library 
(F2336sl0)476B                               University  of  California 

Berkeley 

680862 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


